Outlyingness weighted covariation

Boudt, Kris;Croux, Cristophe;Laurent, Sébastien
(2011) Journal of Financial Econometrics — Vol. 9, n° 4, p. 657-684 (2011)

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  • Boudt, KrisKatholieke Universiteit Leuven
    Author
  • Croux, CristopheKatholieke Universiteit Leuven
    Author
  • Laurent, SébastienMaastricht University and CORE, UCL
    Author
Abstract
Quadratic covariation is a popular descriptive measure for the volatility of a multivariate price process. It is consistently estimated by the sum of outer products of high-frequency returns. The proposed realized outlyingness weighted covariation (ROWCov) is a weighted sum of outer products of high-frequency returns and downweights returns that, because of jumps or other reasons, are outliers under the Brownian semimartingale model. The ROWCov is positive semidefinite and remains consistent for the integrated covariance in the presence of a finite-activity jump process. We illustrate the usefulness of the estimator on five-minute returns on the transaction prices of the Dow Jones Industrial Average constituents.
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Boudt, K., Croux, C., & Laurent, S. (2011). Outlyingness weighted covariation. Journal of Financial Econometrics, 9(4), 657-684. https://doi.org/10.1093/jjfinec/nbr003 (Original work published 2011)